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The Crucial Role of Insurance Mandates

By David Leonhardt October 5, 2010 8:51 pmOctober 5, 2010 8:51 pm

The threat by McDonald’s to discontinue its health-insurance coverage is one recent aftershock of the health care overhaul, as my column this week discusses. In the end, McDonald’s seems unlikely to follow through on that threat. But another part of the new law will lead to real changes: the requirement that insurers offer coverage to all children, including those with pre-existing illnesses.

As Reed Abelson has written, the new rule has caused “some insurers to balk at the idea that they will be forced to cover too many sick children. Aetna, Cigna and WellPoint, among others, have said they will stop selling new [child-only] policies in some states.”

This situation perfectly illustrates why many economists say the health care law rightly mandates that everyone have health insurance. Without it, the market for health insurance won’t function very well. That has long been clear with individual policies — that is, those not offered by employers — which are terribly expensive. Why? Because the market is dominated by people who are sick and who expect to get sick. Healthy people who don’t get insurance from their employer, by contrast, are often willing to remain uninsured (which, of course, can prove to be a really bad idea).

Similarly, families who react to new legal treatment of children by trying to buy insurance will be disproportionately those with children who need a good bit of medical care. Some insurers know this and are reluctant to be in the market.

The situation will eventually sort itself out, because all families will have to get insurance starting in 2014. But until the law’s provisions are fully in place, Aaron Carroll — an Indiana University doctor who writes for the Incidental Economist blog — points out that “this kind of situation will crop up again and again and again.”

Between now and 2014, federal regulators can deal with such problems by offering temporary exemptions where they seem to be needed. Without a health-care mandate, though, there would be no good ultimate answer.

The Affordable Care Act imposes economic burdens that are the equivalent of taxes, an economist writes. Read more…

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